In its written evidence to the inquiry, the IoD said it was too early to provide a definitive assessment of the underlying cause of the collapse. However, it said its primary conclusion was that it was not due to a flaws in the UK’s system of corporate governance but instead queried whether the Thomas Cook board, led by Fontenla-Novoa, had understood the risks of its debt-fuelled mergers with MyTravel and also The Co-operative retail chain between 2007 and 2011.
“This may have led to a situation whereby the company was subsequently unable towithstand significant downward shocks to its market environment. These included the impact on customer demand of the terrorist attacks in Egypt, Tunisia and Turkey, exchange rate fluctuations,a series of warmer summers in the UK, greater online competition in the travel industry and the impact of Brexit on travel behaviour,” it said.
“We would be interested to discover if the board of directors was effective – over a period of time – in understanding and managing the risks arising from these changes to the market environment.
“Furthermore, did they properly oversee the business risks arising from the firm’shighly leveragedfinancial position? Did the board do a sufficient job in understanding and challenging the response of management to these issues? Was there adequate expertise around the boardroom table to fulfil this task?
“In addition, we would seek to understand if the board at various stages of its tenure adopted a sufficiently long-term perspective on planning for the company’s success? Alternatively, was it primarily concerned with delivering short-term financial returns as the basis for excessive dividend payments or management remuneration?”
The IoD also said it was concerned at reports that holders of credit default swaps sought to block Thomas Cook’s restructuring negotiations because an outright collapse of the company would be better for them.
“We would be interested to understand the role that these financial institutions played in Thomas Cook’s ultimate collapse,” it said.
The IoD also echoed MPs’ concerns that directors’ pay and bonuses were calculated on profit numbers that excluded one-off negative items.
Whilst it insisted the CEO Peter Fankhauser’s average pay of £1.4 million a year since 2016 was ‘not an excessive amount’ compared with CEO pay at FTSE 250 companies, it said it was concerned about the complexity of his remuneration, given the bonuses were awarded on the basis of adjusted ‘pre-exceptional’ earnings.
“Were accounting judgements therefore being affected by executive pay considerations?” it asked.
Fankhauser, appearing before the BEIS last week, told MPs that 30% of his bonus was paid in shares, which were now worthless, and the last bonus he received was £558,000 in 2017. Whilst he refused to give an immediate undertaking to MPs to repay the bonus, he may be forced to do so under so-called clawback provisions.